Stocks fall, risk currencies follow, CAD Employment next

The US dollar finally came under some selling pressure on Thursday after the US set another record high of more than 59,000 coronavirus cases on Wednesday. The numbers moderated a bit today but medical facilities across the nation are getting slammed, positivity rates are alarming and the death rate is rising. Jobless claims were better than expected, rising by 1.31 million vs. 1.4 milion the week prior.  However with new shutdowns announced across the nation these numbers could deteriorate in the coming weeks and even when they stabilize, firms won’t be rushing to hire anytime soon.

Yet the main reason why stocks have not collapsed is prospect of another coronavirus relief package and a second round of stimulus checks. Another package is seen vital for the Trump Administration as key parts of their economic stimulus plan expires at the end of this month. With only US producer prices scheduled for release tomorrow, Friday could be another sleepy day for currencies. Bigger moves are likely next week when we have ECB, Chinese Q2 GDP, US retail sales, the Empire and Philadelphia Fed surveys scheduled for release. USD/JPY has been trading in a very tight range and if there are no positive stimulus headlines, we could see a break to the downside. 

Europe on the other hand continues to recover with Germany reporting an improvement in trade. The trade surplus nearly doubled in May with imports and exports rebounding after double digit declines in April. With that said, the ECB remains vigilant with policymaker Villeroy warning that they are ready to be innovative with policy tools if needed.  The European Central Bank meets next week and while they will be worried about economic risks in the US, data is improving with most countries in Eurozone maintaining a flat curve that will bolster economic activity.

Sterling extended its gains for the fifth day in a row but retreated after the UK government announced a major stimulus package that included a reduction in VAT for the travel industry and a cut in the tax on home purchases. Unfortunately it remains to be seen whether the gains can be sustained as Brexit talks break down. According to the EU, there are significant divergences but talks will continue next week in Brussels.  

The Canadian dollar pulled back despite stronger housing data. USD/CAD will be in focus tomorrow with Canada’s labor market report scheduled for release. Like many countries in the Eurozone, Canada has done a good job of flattening the COVID-19 curve allowing for business activity to reopen. However according to the latest IVEY PMI report, there was very little improvement in the employment component which suggests that while businesses have stopped firing, they have not been aggressively hiring. Weaker numbers would encourage USD/CAD to bounce off the 200-day SMA.

The best performing currency continues to be the New Zealand dollar. Unlike Australia, they are not dealing with a second wave. Data has been better with business confidence improving and global dairy prices rising. In contrast, Australia announced further border restrictions for Victoria residents. Home loans plunged and earlier this week, the PMI services index fell. AUD should continue to underperform NZD and other major currencies.